Taxes, Sales - As introduced, exempts the retail sale of fresh fruit and vegetables for human consumption from the food retail sales tax. - Amends TCA Title 67, Chapter 6.

114th Regular Session (2025-2026) Introduced by Mark Pody

Exempts retail sale of fresh fruit and vegetables for human consumption from Tennessee's 4% state sales tax starting July 1, 2026.

Placed on Senate Finance, Ways, and Means Committee calendar for 4/21/2026

#sales #taxes

Summary of Bill SB 2254 (Session 114, Tennessee)

Title: Taxes, Sales - Exempts the retail sale of fresh fruit and vegetables for human consumption from the food retail sales tax.

Jurisdiction: Tennessee

Bill Type: As introduced, House Bill 2086 / Senate Bill 2254

Primary Sponsor: Pody (Senate)

General Topic: Sales and use tax on food and food ingredients; exemption for fresh produce

1) Purpose and Intent

Primary aim: Create an exemption from the state and local sales tax for the retail sale of fresh fruit and vegetables intended for human consumption.

Overall effect: The current tax on retail food and food ingredients would remain (at 4% under current statute), but fresh produce would be exempt from that tax beginning July 1, 2026.

2) Key Provisions and Changes

Amends Tennessee Code Annotated, Title 67, Chapter 6, Section 67-6-228:

Replaces the current provision (a) to provide:
(1) The retail sale of food and food ingredients for human consumption remains taxed at 4% of the sales price, with exceptions noted elsewhere.
(2) The retail sale of fresh fruit and vegetables for human consumption is exempt from the tax.

Effective date: July 1, 2026.

3) Affected Parties and Impacts

Affected Transactions:

Retail sales of fresh fruits and vegetables for human consumption.

Government Revenue Impact:

State: Net decrease in General Fund revenue estimated at $96,409,600 in FY26-27 and subsequent years.
Local governments: Mandatory net decrease in local revenue estimated at $68,495,800 in FY26-27 and subsequent years.

Rationale and Fiscal Assumptions (as per Fiscal Review):

Local governments can levy an equivalent tax; eliminating the state tax on these items also eliminates local option taxes and the state-shared allocation on these items.
Current state rate on food and food ingredients is 4%; local average option tax rate assumed around 2.5%; the effective local apportionment rate is about 4.0276%.
Fresh fruits and vegetables account for roughly 12.03% of average family "Food at Home" expenditures; estimated total taxable food sales used to project revenue declines.
The analysis also estimates potential partial economic effects if savings are spent on sales-taxable goods/services (50% multiplier effect) and subsequent changes in state/local tax receipts from that behavior.

Economic Interaction:

Some portion of tax savings from the exemption may be spent on taxable items, resulting in a modest offset to revenue declines; the analysis projects net decreases even after potential spending effects.

4) Procedural and Timeline Aspects

Legislative Path:

SB 2254 is paired with HB 2086; the fiscal note accompanies the bill.
The bill is scheduled for committee consideration in the Senate Finance, Ways, and Means (FW&M) Committee in April 2026, with prior calendar placements and a positive/negative fiscal note history.

Effective Date:

The exemption becomes law on July 1, 2026, “the public welfare requiring it.”

Notable Considerations for Readers

The bill does not remove the entire food tax; it specifically exempts fresh fruits and vegetables from the 4% state sales tax on retail food and food ingredients.

Local governments’ revenue structures related to sales taxes on food may experience reductions, including the loss of the local option tax and state-shared allocations for these items.

The fiscal impact analysis projects substantial revenue reductions for both state and local governments, with some consideration given to possible offsetting economic activity from consumer spending shifts.